The UK HM Revenue & Customs (“HMRC”) has issued a “special announcement” on its website clarifying the intended scope of the bank payroll tax (“BPT”) announced in the Pre-Budget Report. It is now clear that the BPT will not apply to employee bonuses paid by UK asset managers (including the UK affiliates of primarily US-based managers).
The BPT announced in the Pre-Budget Report will apply to bonuses over £25,000 paid to certain employees of “taxable companies” on or before 5 April 2010 (for further detail on the BPT, see the Alert dated 15 December 2009 “UK Pre-Budget Report”). At the time of the Pre-Budget Report, it was unclear from the terms of the draft BPT legislation whether fund management or other asset management firms paying bonuses to their employees would be subject to the BPT. Whilst the draft legislation could be read to mean that most asset management firms, depending upon the precise nature of their activities, would not be subject to the BPT, this was not entirely certain.
HMRC’s clarification states that the draft BPT legislation will be amended so that (assuming the firm is not a deposit-taker) only investment firms which are “full scope BIPRU 730k firms” (or which would be full scope BIPRU 730k firms if their head office were located in the UK) will be “taxable companies” subject to the BPT.
The reference to a firm being a “full scope BIPRU 730k firm” refers to the regulatory permissions which a firm has from the UK Financial Services Authority (“FSA”) to carry on regulated financial activities in the UK. A BIPRU 730k firm is an investment firm that is subject to the highest base capital requirement for regulatory capital purposes and which is authorised to carry on the activities of both “dealing on own account” and “underwriting and/or placing financial instruments”.
Asset managers may therefore wish to review their precise regulatory status, but it would be exceptional for a firm primarily engaged in asset management activity to be a BIPRU 730k firm and therefore a “taxable company” subject to the BPT.
It should also be noted that even where a firm is a full scope BIPRU 730k firm (but is not a deposit-taker), the firm will be a “taxable company” only if it is engaged “wholly or mainly” in “relevant regulated activities” and the BPT will apply only to certain bonuses paid by such a firm to “relevant banking employees”, being employees who are, directly or indirectly, engaged in “relevant regulated activities”. Whilst the precise facts and circumstances would need to be reviewed in each case, asset management activities are generally considered not to be “relevant regulated activities” and it is therefore possible that bonuses paid by firms to their asset management employees will not be subject to the BPT, despite the fact that the firm may be a full-scope BIPRU 730k firm.